The price tag on that brand-new Pentium II PC looks pretty
tempting. In fact, you decide, you can fit the expense into your
business's budget rather easily. But before you buy, answer
this question: Have you considered its total cost of ownership
(TCO)?

More than just the equipment's original cost, TCO looks at
the big picture, taking into consideration information technology
(IT) costs incurred throughout the life of your business. These
costs include everything from technical support to training--even
administrative expenses for procuring technology. Analyzing your
equipment's TCO has become increasingly important because the
additional costs you incur throughout the equipment's lifetime,
especially when it comes to PCs, can add up to much more than the
cash you laid out upfront.

Where The Money Goes

In the majority of cases, PCs make up the lion's share of a
company's IT expenses. Years ago, when equipment was more
centralized in the MIS department, it was easier to track and
control these costs. But as computers migrated to the desktop,
costs have decentralized, making it more difficult to get a handle
on a business's TCO.

Where does all the money go? Surprisingly, capital costs for
your business's hardware and software make up a fairly modest
portion of your investment over time, says Bill Kirwin, vice
president and research director for the Gartner Group, an IT
research firm in Stamford, Connecticut. While it's always a
good idea to negotiate the best deal you can with retailers and
resellers, this isn't where the bulk of your IT costs come
from. And even though businesses could be taking advantage of the
savings from today's falling computer prices, many are choosing
to spend more money in this area, buying bigger and faster PCs to
stay on the cutting edge.

Technical support costs make up a substantial portion of TCO.
According to the Gartner Group, the annual cost for software
training, technical support and repair on a Windows 95 PC adds up
to about $1,300 per user. Then there are administrative costs,
which include purchasing technology, the labor costs of managing IT
assets and developing policies for equipment usage.

But it's user operations that eat up the largest amount of
your IT budget by far. What's even trickier is that these costs
are difficult to quantify. They're those things that all
employees do while sitting in front of a PC that sap their time,
indirectly costing you money in lost productivity. These activities
include time spent on PC management tasks, such as installing
software, creating and moving files, and learning new technology. A
big chunk of TCO comes from time wasted when the office's
unofficial techie stands over an employee's shoulder offering
PC advice. Plus, there's always the "futz factor," in
which employees spend time on nonbusiness-related tasks, such as
creating screen savers, sending personal e-mail and checking their
horoscopes on the Web.

Beyond hardware and software, there's a number of additional
costs associated with computer and high-tech equipment, which add
to your TCO. These include expenses for printer ink and paper,
software upgrades, fax transmission costs--even the electricity it
takes to run PCs and keep your office cool, since they generate a
fair amount of heat.

Trimming The Fat

While all these expenses may seem staggering, take heart. Many
vendors are placing added emphasis on TCO and the ways their
technologies can reduce it. Lexmark International, for instance,
has printer management software that remotely identifies problems
like low toner, which they claim can save companies an average of
$734 per printer annually. Features like the Registry in
Microsoft's Windows 95 operating system hope to reduce
administrative costs by offering easy, centralized access to
hardware and software configuration files. There are also new,
inexpensive devices such as Net PCs aimed at shrinking your capital
and system management costs, just as network computers do. (See
September "Business Bytes.")

There are several other strategies you can implement to put a
dent in your TCO. Since most technical support budgets are
seriously underfunded, this is often a good place to start. First,
look into system management tools that help your tech support staff
do their jobs more efficiently, says Kirwin. These might include
inventory configuration management software to easily gather
detailed information about networked PCs or electronic software
distribution products that allow you to install software over the
entire network rather than on each individual PC. Remote system
management tools can also drive down your tech support costs,
allowing internal staff to diagnose PC problems from a central
location or outside vendors to dial into a PC (with your
permission), assess its condition and then fix the problem from
afar.

You should also find ways to get the most use out of your tech
support staff. Because most small businesses can't afford more
than one, or even just one, full-time tech support person, consider
hiring part-time help. In many small organizations that lack
in-house staff, outsourcing certain technical support functions,
such as remote tape backup or custom software development, may also
make sense.

Take a closer look at your costs for procuring technology, as
well. One way to decrease them is through electronic commerce.
Technology vendors can lower your costs for procurement by setting
up a system to handle purchasing and inventory management
electronically. The downside is that this strategy locks you into
using the same vendors. Keep in mind, however, that it's not
very cost-efficient to always be calling around for the best price;
the best strategy may be to choose one vendor and work with them to
find ways to reduce your administrative costs.

When it comes to cutting costs, one of your first instincts may
be to hold on to your PCs as long as you can, thinking the less
money you spend on new technology, the better. In the long run,
warn experts, keeping a PC too long actually raises your costs.
Having several generations of hardware, software and operating
systems increases the complexity of your PC environment, thus
increasing your costs. Not only do you have to maintain technical
expertise in older technologies, but you also have to find ways for
older equipment to work with the new technologies and develop all
your custom applications to support multiple environments.

According to the Gartner Group, upgrading from a Windows 3.x or
DOS environment to a Windows 95, Windows NT or OS/2 operating
system can reduce your annual costs by about $1,000. Current
operating systems have improved memory management features, and
their user interfaces are easier to learn, thus reducing employee
training time and tech support.

The majority of new PCs are also Desktop Management Interface
(DMI)-compliant. The DMI is a standard for remote management of
desktop computers and server hardware. DMI-compliant machines
communicate their requirements with a DMI management application,
making it easier to diagnose and avoid problems. In the near
future, don't be surprised if your machine senses its hard
drive is going to fail in 48 hours and notifies a systems operator,
who can switch out the failing drive before it blows. Technologies
like these that forecast problems before they occur can save you
money in both repairs and employee downtime.

Standardization is also key. Strive to make all hardware,
applications and operating systems uniform in your business. Also,
develop standard procedures for buying and retiring technology.

Finally, look at ways to improve employees' technology use.
Although it's costly, make sure all personnel receive some type
of formal computer training, whether through classroom or
computer-based instruction. Because the majority of tech support is
usually supplied by co-workers--leading to frequent misdiagnoses of
problems and, ultimately, wasted time--you should provide the power
users in your office with the training, tools and technology they
need to assist other employees. Make sure your "tech support
staff" has access to help-desk information. Consider cutting
back a few of their responsibilities to make their tech support
role an official part of their job descriptions. Because studies
show that employees waste one hour a week on personal tasks on
their computers (most likely a conservative estimate), be sure to
establish policies for the appropriate use of computer equipment,
software and the Internet.

On The Flip Side

With all the recent emphasis on TCO, some believe the real value
new technologies bring to businesses is being left behind. When
considering a new technology, your first concern shouldn't be
cost savings but what the equipment can bring to your business,
says John MacGilvary, chief analyst with Datapro Information
Services Group, an information technology research and analysis
firm in Delran, New Jersey. Buy new technology because it enables
you to do something you couldn't do before or because it gives
your business added flexibility or a competitive edge. In fact, the
best solutions may not be the cheapest. Consider the case of the
notebook computer. True, they're much more expensive to
implement than desktop computers. But the high initial costs often
pale in comparison to the benefits companies receive: added
flexibility and increased productivity.

Once you've purchased the right technology, you can truly
begin to find effective ways to trim your TCO. What it all boils
down to is looking beyond the typical information systems areas to
find the waste. Then, chances are the opportunities to cut TCO will
land right in your lap.